Setting Up Life Insurance for Charity/Giving

Perhaps you have entertained the idea of leaving a sizeable amount of money to a favorite charity after you pass away. The following is an overview of how to set up your life insurance to donate the proceeds to charity.

There are three different ways to set up your life insurance policy to benefit a charity:

1. Your favorite charity (or church, organization, etc.) can be named as the beneficiary of your life insurance policy so the death benefit automatically gets paid to the specified organization. Realize, however, that you will not get a “charitable income tax deduction” for the premiums you pay.
2. Donate your life insurance policy to the charity of your choice. This method does allow you to claim a tax deduction on your income taxes. You can ensure that the premiums are paid by making a deductible cash gift to the charity.
3. Provide a donation by allowing the charity to purchase your life insurance policy.

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Typically, naming a charity as beneficiary or making a donation is done with a permanent life insurance policy because it builds cash value over the life of the policy. For the best advice on setting up a charitable donation, consult with an attorney or tax advisor. Also, due to the nature of life insurance policies being around until your death, many charities are not as interested in a policy donation because they would rather have an immediate cash donation.

Charity Life Insurance and Tax Deduction

To take advantage of a charitable contribution tax deduction, there are a number of things to keep in mind:

1. Be sure it is a nonprofit organization – 501(c)(3) certification.
2. Verify that the organization will accept the life insurance as a gift.
3. You will need to specify the charity as the owner and beneficiary of your policy to claim the tax deduction.
4. Charities are less interested in term life policies because they are essentially worthless if the term expires while you are still alive; whole life policies are more attractive because they continue to build cash value.
5. If you do donate a term policy, you can deduct the cost of the premiums; with the donation of a whole life policy, the cash value and premiums can be deducted.

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